Insider Trading & Manipulations

Posted May 17, 2014 by Martin Armstrong

COMMENT: I can also tell you from my personal experience that what you are writing about insider trading is false. I worked in the same office as Steve Cohen way back in the 80’s when he was just starting out. This was in lower Manhattan before he moved Uptown and later to Connecticut. His first big score was in the General Foods buyout by Phillip Morris. He had a lawyer working on the deal feeding him info through one of the retail brokers there. He leveraged that model to become one of the wealthiest men in the World. The business model was : hire only people who had an ” edge ” through a personal relationship – i.e. a lawyer, banker, analyst. blocktrader, columnist, news wire employee,corporate cfo, etc.

There is no shortage of events to front- run daily : Earnings, analyst rating changes, corporate events, takeovers etc.,,,

Well, I could go on, but I really just wanted prevent you from printing something obviously erroneous to anyone in the industry.

REPLY: This is “insider trading” as defined by the SEC. Yes, the hedge fund industry got way out of hand and I hired a guy 20 years ago Robert Howe who worked for one of the big firms in NYC. He confirmed precisely what you are talking about albeit a different firm. He was told to get guaranteed trades to keep his job. He came to us because he did not want to get involved and that was the early 1990s.

That is not my point. This type of activity is NOT illegal in currencies or commodities because they are not regulated by the SEC. I qualified what I wrote excepting takeover activity. This type of behavior has been going on for decades. This is precisely guaranteed trades. Mere phone calls about something that is not a guaranteed trade is used by the prosecutors as if it were. There are a number of cases like that. I can name some firms that did precisely the same thing as SAC.

I was constantly being approached by the money center trading banks to join in on manipulating deals. I always refused. I would never trust them for two seconds. The reason they were always trying to buy into our firm or get me into the fold was to then have Princeton put out false forecasts so they could trade against the clients. I stood up in our March 1999 Tokyo World Economic Conference and warned the Japanese that they were being targeted again. I told them how to defeat the manipulation and the bankers lost billions. After forecasting the collapse of Russia in August 1998, they were out for my blood because I was not playing their games.

The rolling manipulations of all sorts of markets would surprise you. They paid bribes to Russian officials to recall platinum to take an inventory. They even manipulated rhodium. The control of warehouses in commodities has been a game for decades. In 1980, they managed to get the COMEX to increase the margin require for longs but not shorts. The games have been countless. However, these are not equity and thus they have been exempt from the criminal law.

This is my point. Not to excuse SAC, but to point out this is a one-sided issue that is limited to the SEC. As far as front-running, this is the plague in futures and has always been since the ’70s when I began trading. Trading with banks in bonds and currencies resulted in them keeping track of who had what positions all to trade against. It is just not consistent because we have too many regulators instead on just one.

This type of conduct is not acceptable. You would be surprised but in NYC in the terrorist cases, lawyers hired good-looking paralegals to sleep with the opposite side to get inside info for the case. My point is, this is standard operational procedure in NYC even in a court of law. When I say they practice law differently in NYC, I really mean it is outrageous. Yes, you are correct, they were still officially Connecticut based.